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ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA

BRIEF FOR AMICI CURIAE THE UNITED STATES
AND THE FEDERAL COMMUNICATIONS COMMISSION

STATEMENT OF INTEREST AND QUESTION PRESENTED

The United States and the Federal Communications Commission
file this amicus curiae brief in response to the Court's request for
the government's view on whether federal law preempts a merger condition
imposed by the State Corporation Commission of Virginia ("Virginia
Commission") on the offering of interstate special access or
private line services by Appellant MCIMetro Access Transmission Services
of Virginia, Inc., d/b/a Verizon Access Transmission Services of Virginia
("Verizon Access").1

The Federal Communications Commission ("FCC")
is the federal regulatory agency charged by Congress with the responsibility
to "regulat[e] interstate" common carrier communications
services, 47 U.S.C. § 151, and to ensure that the rates, terms,
and conditions of such services are just and reasonable and free of
any undue discrimination or preference, id. §§ 201(b),
202(a). In addition, the FCC must ensure that any transaction involving
the transfer of lines used in interstate communications from one carrier
to another complies with "public convenience and necessity."
See id. § 214(a). The United States Department of Justice
("DOJ") also reviews proposed acquisitions or mergers for
potential violations of the federal antitrust laws.

STATEMENT OF FACTS

Special access services, which are sometimes called
"private line" services, provide dedicated bandwidth for
a customer's usage. Because special access lines usually carry both
interstate and intrastate traffic, the FCC has drawn a bright-line
rule for jurisdictional purposes: Special access lines carrying both
intrastate and interstate traffic are classified as interstate for
rate regulation and other purposes "if the interstate traffic
on the line involved constitutes more than ten percent of the total
traffic on the line." 47 C.F.R. § 36.154(a). Interstate
traffic that "amounts to ten percent or less of the total traffic
on a special access line" is deemed de minimis, and that line
is classified as intrastate for jurisdictional purposes. MTS and
WATS Market Structure Amendment of Part 36 of the Commission's Rules
and Establishment of a Joint Board, 4 FCC Rcd 5660, 5660, para. 2
(1989) ("Special Access 10% Order").

The Virginia Commission approved the merger of Verizon
Communications, Inc. and MCI, Inc. on October 6, 2005, with several
conditions. As relevant here, the Virginia Commission required that
MCI (now Verizon Access), as a condition of merging, "continue
to offer to wholesale customers in Virginia its available intrastate
and interstate special access, private line or its equivalent,
and high capacity loop and transport facilities, without undue discrimination,
[on] pre-merger terms and conditions and at prices that do not exceed
pre-merger rates." Joint Petition of Verizon Communications
and MCI, Inc. for approval of agreement and plan of merger, Order
Granting Approval, Case No. PUC-2005-00051, at 28 (Va. St. Corp. Comm'n
Oct. 6, 2005) (JA 52) (emphasis added) ("Virginia Approval
Order"). The condition applies to both existing and future
customers of MCI and will remain in effect until the Virginia Commission
determines that competition from other carriers will ensure "adequate
service to the public at just and reasonable rates." Id.
at 28-29 (JA 52-53).

The United States Department of Justice investigated
the merger for possible violations of the federal antitrust laws.
It filed a complaint and proposed consent decree in the United States
District Court for the District of Columbia on October 27, 2005. See
Complaint 26 (JA 16). The court approved the consent decree under
the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h),
and entered it on March 29, 2007. See U.S. v. SBC Commc'ns, Inc.,
489 F. Supp. 2d 1 (D.C. Cir. 2007) (entry of Verizon-MCI consent decree
is in the public interest). The antitrust consent decree, which required
specified divestitures covering fiber optic lines (including certain
lines in Virginia), did not impose any conditions or restrictions
on the pricing of telecommunications services.

On November 17, 2005, the FCC issued its decision under
sections 214 and 310(d) of the Communications Act of 1934, as amended,
47 U.S.C. §§ 214, 310(d), permitting the transfer of lines
associated with the merger. See Verizon Communications Inc. and
MCI, Inc. Applications for Approval of Transfer of Control, 20
FCC Rcd 18433 (2005) ("FCC Order") (JA 60-100). The
FCC adopted as binding legal commitments several conditions that Verizon
and MCI offered voluntarily, including the commitment that "[f]or
a period of thirty months following the Merger Closing Date, Verizon/MCI
shall not increase the rates paid by MCI's existing customers (as
of the Merger Closing Date) of the DS1 and DS3 wholesale metro private
line services that MCI provides in Verizon's incumbent local telephone
company service areas above their level as of the Merger Closing Date."
FCC Order, 20 FCC Rcd at 18560 (JA 91). The FCC also stated
that its conditions were not intended "to restrict, supersede,
or otherwise alter state or local jurisdiction under the Communications
Act of 1934, as amended, or over the matters addressed in these Conditions,
or to limit state authority to adopt rules, regulations, performance
monitoring programs, or other policies that are not inconsistent with
these Conditions." Id. at 18559 (JA 90).

After Verizon and MCI consummated the merger, Verizon
Access petitioned the Virginia Commission to remove its merger condition
insofar as it pertained to interstate special access services. The
Virginia Commission denied the request "without prejudice."
Petition of MCIMetro Access Transmission Services of Virginia,
Inc., d/b/a Verizon Access Transmission Services of Virginia for removal
of certain provisions of the October 6, 2005, Order in Case No. PUC-2005-00051,
Order Denying Petition, Case No. PUC-2006-00057, at 10 (Va. St. Corp.
Comm'n July 10, 2006) (JA 110).

In November 2006, Verizon Access filed a complaint in
the United States District Court for the Eastern District of Virginia
challenging the Virginia Commission's authority to impose a merger
condition related to interstate special access services. See Complaint
6 (JA 10). On March 27, 2007, the district court dismissed the complaint
under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure
to state a claim upon which relief can be granted. The court found
that "there is no [federal] preemption of special access lines
in particular or the field of telecommunications in general,"
D. Ct. Op. at 8 (JA 127), and rejected the argument that the state-imposed
condition "conflicts with the policy judgments made by the FCC
and DOJ in their respective approvals of the merger," id.
at 10 (JA 129). Verizon Access appealed.

ARGUMENT

Verizon Access has contended that the FCC Order
and the antitrust consent decree preempt the Virginia Commission's
merger condition. Verizon Access also argues more generally that the
condition is preempted by the federal Communications Act. The Virginia
Commission disagrees and contends that the FCC Order ratified
its merger condition. The government wishes to make three primary
points. First, the Virginia Commission's merger condition does not
conflict with and is not preempted by the FCC Order or the
antitrust consent decree. Second, the FCC Order did not authorize,
endorse, or ratify the Virginia Commission's condition. Third, separate
from the FCC Order, the Communications Act of 1934, as amended,
generally grants the FCC exclusive authority to regulate the rates,
terms, and conditions under which interstate communications services
are sold. The Virginia Commission therefore lacks authority to regulate
interstate special access services through a merger condition. In
the government's view, the merger condition at issue in this case
is therefore preempted.

1. Under the Supremacy Clause, U.S. Const. art. VI,
cl. 2, federal law preempts any conflicting state laws or regulatory
actions that would prohibit a private party from complying with federal
law or that "stand[] as an obstacle to the accomplishment and
execution" of federal objectives. Freightliner Corp. v. Myrick,
514 U.S. 280, 287 (1995) (internal quotation marks omitted); Hillsborough
County, Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713
(1985) (noting that "state laws can be pre-empted by federal
regulations"). Verizon Access has argued that the FCC Order
or the antitrust consent decree preempts the challenged merger condition.
See Complaint 41-42 (JA 22-23). Contrary to Verizon's contention,
however, the condition adopted by the Virginia Commission does not
conflict with and is not preempted by the FCC Order or the
antitrust consent decree.

Verizon Access cannot claim that it would be impossible
to comply with both the state condition and the FCC Order:
If Verizon Access offers its wholesale, special access services at
pre-merger rates and on pre-merger terms and conditions to all comers
(the state condition, JA 52), it would necessarily "not increase
the rates" paid by MCI's existing special access customer base
(the federal condition, JA 91).

Verizon Access's argument that the state-merger condition
contravenes the FCC's objectives also fails in light of the savings
clause of Appendix G. There, the FCC made explicit its intention that
the conditions in its Order not "restrict, supersede,
or otherwise alter state or local jurisdiction under the Communications
Act of 1934, as amended, or over the matters addressed in these Conditions,
or . . . limit state authority to adopt rules, regulations, performance
monitoring programs, or other policies that are not inconsistent with
these Conditions." FCC Order, 20 FCC Rcd at 18559 (JA
90). In other words, the savings clause clarifies that the FCC's special
access condition (like the others in the FCC Order) was intended
to be a minimum safeguard of competition. It was not the product of
a fine-tuned balancing of the benefits and burdens of regulation that
would foreclose state action on the same subject. Cf. Hillsborough
County, 471 U.S. at 721 (finding no preemption when agency regulations
set "minimum safety standards" rather than "a particular
balance between safety and quantity"). Because the Virginia Commission's
condition is "not inconsistent" with the private line condition
in the FCC Order, the FCC Order does not preempt it.

There is likewise no basis for the claim that the Virginia
Commission's condition conflicts with the antitrust consent decree.
Complaint 41-43 (JA 22-23). The decree does not regulate the prices,
terms, and conditions of any telecommunications services, and the
Virginia Approval Order has no effect on the divestitures required
by the decree, which have already been consummated.

2. The Virginia Commission and the district court go
too far, however, in asserting that the savings clause in Appendix
G granted general authority to the States to impose regulations on
interstate special access services. See D. Ct. Op. at 11 (JA
130) (asserting that the FCC intended the States to have authority
"over matters which are not reserved to the [S]tates by the Act,
but which do appear in the Conditions"); Va. Comm'n Br. at 20
(claiming that the savings clause "envisions (in the FCC's view)
a dual federal-state regulatory regime over the matters addressed
in the FCC conditions"). The text of the savings clause makes
clear that the federal conditions do not "alter state
or local jurisdiction . . . or . . . limit state authority."
FCC Order, 20 FCC Rcd at 18559 (JA 90) (emphasis added). In
other words, the FCC left undisturbed whatever authority state commissions
had before the FCC Order. There is simply no textual support
for the notion that this savings clause confers additional authority
on the States or ratifies
merger conditions that States did not have jurisdiction to impose
otherwise. See Verizon Commc'ns Inc. v. Law Offices of Curtis V.
Trinko, LLP, 540 U.S. 398, 407 (2004) (holding that a savings
clause stating that the Telecommunications Act of 1996 does not "modify,
impair, or supersede" the antitrust laws "does not create
new claims that go beyond existing antitrust standards"); see
also United States v. Locke, 529 U.S. 89, 106 (2000) (refusing
to read a savings clause to "upset the careful regulatory scheme
established by federal law").

The FCC repeatedly has used savings clauses such as
this to make clear that its orders do not disturb existing state authority,2
and no court or state commission has previously construed these savings
clauses to impart new authority to the States. Contrary to the Virginia
Commission's claim that Appendix G's savings clause has "no other
plausible meaning" than to grant the State authority it otherwise
does not possess, Va. Comm'n Br. at 20, the clause's most plausible
meaning is that it leaves state authority unchanged.3

The district court's reliance on the FCC's "continuing silence"
is similarly misplaced. D. Ct. Op. at 12 (JA 131). The court found
it significant that a representative of XO Communications discussed
the Virginia Commission's merger condition with legal advisers to
two FCC Commissioners shortly before the FCC voted to approve the
transfers. See id. (citing Letter from Thomas Cohen, Kelley
Drye & Warren LLP, to Marlene H. Dortch, Secretary, Federal Communications
Commission, WC Docket Nos. 05-65, 05-75 (filed Oct. 7, 2005) (JA 118-19)).
From that isolated communication, the District Court surmised — and
the Virginia Commission contends in this Court, see Va. Comm'n
Br. at 25, 28 - that "if the FCC had any concerns about the substance
of the [Virginia Commission's] condition, it would have made them
known," D. Ct. Op. at 12 (JA 131). That view misapprehends the
law as well as the reality of agency decision-making. As a practical
matter, the FCC cannot necessarily respond to every piece of information
put into the administrative record, and there is no legal or logical
basis for treating its failure to do so as an implicit statement of
its views on the merits. Furthermore, the district court's assumption
that the FCC had "actual knowledge" of the state-imposed
condition is irrelevant: whether particular state-imposed conditions
might be preempted by federal law was not an issue in the federal
proceeding, which focused on the transfer of control and on the federally-imposed
conditions that served the public interest. The fact that the FCC
did not go out of its way to mention an issue not before it is unsurprising
and establishes nothing as to its opinion on the matter. Similarly,
no conclusions should be drawn from the FCC's "continuing silence
in the wake of this litigation." D. Ct. Op. at 12 (JA 131). Like
other federal agencies, the FCC has limited resources to expend on
litigation and cannot be said to approve of a particular judicial
result merely because it chooses to focus those resources on cases
in which it is a party.

3. Because the FCC Order neither limited nor
expanded state jurisdiction, the general rule that the FCC has exclusive
jurisdiction over interstate communications services applies. See,
e.g., 47 U.S.C. § 151 (creating the FCC "[f]or the purpose
of regulating interstate and foreign commerce in communication by
wire and radio"); id. § 201(b) (requiring all charges
for interstate and foreign common carrier communications services
to be "just and reasonable"); id. § 203(a) (requiring
carriers to file tariffs specifying those charges with the FCC); Vonage
Holdings Corp., 19 FCC Rcd 22404, 22412, para. 16 (2004) (stating
that the FCC has "exclusive jurisdiction over 'all interstate
and foreign communication'"); Mobile Telecommunications Technologies
Corp., 6 FCC Rcd 1938, 1941 n.6 (1991) ("Under the Communications
Act, [S]tates may not engage in tariff regulation of interstate services.
The Act grants this Commission exclusive authority to regulate the
charges and services of interstate common carriers.").4
And although special access lines often carry both interstate and
intrastate traffic, the FCC has classified as jurisdictionally interstate
all special access lines whose traffic is more than ten percent interstate.
See 47 C.F.R. § 36.154(a); Special Access 10% Order,
4 FCC Rcd at 5660, para. 2.5

The enactment of the Telecommunications Act of 1996
did not change the statutory allocation of jurisdiction in any way
relevant to this case. The district court's suggestion that the 1996
Act and the Commission's Local Competition Order opened up
the entire field of telecommunications to joint federal and state
regulation, see D. Ct. Op. at 8 (JA 127), is incorrect. Although
the 1996 Act altered the traditional dual regulatory system and "expand[ed]
the applicability of . . . state rules to historically interstate
issues," Local Competition Order, 11 FCC Rcd 15499, 15544,
para. 83 (1997), it did so only to a limited extent. States in carefully
defined circumstances now have limited authority over certain interstate
matters involving interconnection agreements arising "pursuant
to section 252." Id. at 15544, para. 84; see 47
U.S.C. § 252; see generally Verizon Commc'ns, Inc. v. FCC,
535 U.S. 467, 491-93 (2002) (outlining the interplay of sections 251
and 252); MCIMetro Access Transmission Servs., Inc. v. BellSouth
Telecomms., Inc., 352 F.3d 872, 874-76 (4th Cir. 2003) (same).
Here, however, the Virginia Commission neither acted pursuant to such
procedures nor claims any authority under section 252. Thus, that
provision is of no moment here.

The Virginia Commission therefore had no jurisdiction
to regulate Verizon Access's interstate special access services. That
it attempted to do so as part of a merger approval does not change
the analysis. A state regulator cannot leverage its authority in one
field to regulate another field entrusted to federal oversight alone.
See, e.g., Sperry v. Florida, 373 U.S. 379, 385 (1963) ("A
State may not enforce licensing requirements which, though valid in
the absence of federal regulation, give the State's licensing board
a virtual power of review over [activities sanctioned by federal authorities]."
(footnote and internal quotation marks omitted)); Freeman v. Burlington
Broadcasters, Inc., 204 F.3d 311, 323-25 (2d Cir. 2000). Because
the Virginia Commission's condition undeniably seeks to regulate Verizon
Access's offering of interstate special access services, federal law
preempts it.

CONCLUSION

Federal law preempts the Virginia Commission's condition
insofar as that condition applies to the rates, terms, and conditions
on which Verizon Access offers interstate special access services.6

3. In any event, the Virginia Commission
could not have relied on Appendix G to the FCC Order because
the State adopted its merger condition 25 days before the FCC issued
its decision. Rather, the Virginia Commision asserted that it "is
not . . . prohibited from conditioning Transfers Act approval on matters
related to federal authority," citing cases in which it had conditioned
approval on the merging parties' receiving federal approvals. Virginia
Approval Order at 29 (JA 53).

5. The district court's reliance on
Qwest Corp. v. Scott, 380 F.3d 367 (8th Cir. 2004), to resolve
this issue is misplaced. In Scott, the Eighth Circuit confronted
the narrow issue of whether the FCC's holding in the Special Access
10% Order prohibited a State from requesting performance reports
for traffic over special access lines. It did not, however, address
the issue here: the general scope of state authority under the Communications
Act to regulate the rates, terms, and conditions of interstate special
access services. See 380 F.3d at 374 ("[W]hen the 10%
Order is read as a whole, the Commission's expressed intent to
preempt state regulation does not extend to performance measurements
and standards."). Neither the FCC nor the United States was a
party to that litigation.

6. The United States and the FCC take
no position on any issue before this Court that is not addressed in
this brief.